NLG.TO

[Michael]

Thanks Eaggerlearner - Ramsburg where is the blushing smiley!!!!!

I am trying to finish the story about the Kazakhstan oil barons and chaparral before dinner (my time) but the AOBO action is really disturbing!

Mike

[Michael]

Sometimes the shortest point between two points is not a straight line! I discovered NLG when I was holding Petro Kazalhstan, PKZ (sold that one recently when they received a couple of take-over offers!). PKZ is a great company with high production and low evaluation (the PE was below 3 when I bought!) but they kept running in to legal and political problems. Culminating when the Kazakhstan authorities ordered PKZ to stop gas flaring. (that was when I bought!)

Doing the DD I found out that Kazakhstan was probably the most promising area for oil exploration, which was not totally dominated by state own oil companies, but still PKZ was not valued close to their DCF. So as any unsatisfied lover I started to look around for a more attractive young lady (I am always turned on by sexy shares!)

And here was this small fast growing Oil company sitting on huge reserves with no problems with flaring, no political debacles, no legal issues. The sexy lady was called Nelson (I guess this is the last name!)

I am working in the third world so I appreciate the value of being well connected. Was that the Nelson's secret? Who was the dad and mum?

Dinner time and i have only touch the surface! To be continued......

[Michael]

Why is Ms. Nelson's mum and dad interesting? Well Kazakhstan's president has publicly stated many times, that he would like to see the Kazakh citizens receive part of the proceed related with the Kazakhs "ünderground". NLG employs over 95% local workers and subcontractors and the majority owners are Kazakhs.

Now we are not talking the average Kazakh farmer investing two US$ in his favorite stock.

We have to go back in time to get the full picture: In June 2000, NLG was a company going nowhere fast with 120 mil shares issued...a long comes a group of investors that want to own 70% of the company, so at that point approx 290 mil shares were issued to CAIH and a group called Korinth Investment who later changed their name to Energy Investments International....the history of these 2 group is that CAIH is related to Kazkommertsbank. (and at one point was a very large shareholder in PKZ - Interesting how things are connected!) EEI is rumored to be bankrolled by Timur Kulibayev, 2nd in command at Kazmunaigas (the state owned oil company) and son in law of Nazarbayev, of course the President of Kazakhstan. Along with the new shares many shares, warrants and options were issued to be used as source of funding in the future in addition to loans from Kazkommertsbank and Halyk Savings Bank, rumored to be associated with Kulibayev...time goes by, more money is needed, company issues more shares, but only to the two main principals. Along comes the current President of NLG (too many presidents in this story!) Mr. Kuandykov who starts out purchasing 100mil share (from CAIH and EEI), then later adds another 50 mil.

You might not all know Mr. Kuandykov, he worked and headed up the org Kazcaspishelf, a group of geologists studying oil possibilities in the Caspian Sea and Kazakhstan. Hmmmm... are we talking about a guy who knows all the secret spots for oil and knows how much is in Kazakhstan? Behind the scenes is another guy, Nurlan Balgimbayev, former Prime Minister of Kazakhstan a VERY influential person in Kazakhstan but let me stop here. I guess you get the picture. You have the Kazakhstan elite working for you. Their main goal is to get rich and you are benefiting in the process.

I don't think I tried to keep it a secret that I think NLG is a quite interesting investment (don't want to create any hype here!). You might disagree but try to look at it objectively: Strong local support, high oil prices, huge reserves, rapid increasing production and low production costs.

But what is the story about Chaparral? That is for the next post!

[stocky]

can't trade .to stocks at scottrade.

[Michael]

Stocky Sorry for you    but read on!

[Michael]

Remember CAIH? Well these guys have a lot of interests in the oil sector in Kazakhstan. One of their holdings was a 60% stake in another oil company called Chaparral Resurces Inc. (CHAR.OB – up 13% today!!!).

But too many oil assests makes life difficult so the management of CAIH thought that it would be a good idea to marge their stake in Chaparral into NLG. Normally that would happen at huge multiples but not in this case (after all it was part of the family!)

Chaparral Resources is engaged in international oil and gas development with a single operating asset: development of the 16,900-acre ``Karakuduk Oil Field'' and NLG now holds 60% of the company acquired veeery cheap (Let me be honest I can't remember the price so you just have to believe me!)

Chaparral is a very interesting story in its own right but that is for another day but basically this company is more mature than NLG (meaning that they are producing a lot of oil and traded at lower PE values).

CHAR.OB is now one of the main assets of NLG so how have the companies performed? Well try to look at the chart below. Even though NLG has done great CHAR has by fare out paced it. Now why is that interesting?

Well for two reasons. First this shows what will happen when NLG start to produce a lot of oil (and that is very soon) second the increase in the market cap of Chaparral is not reflected in NLG's stock price.

So you have a company that has: Strong support from the Kazakh elite, high oil prices, huge reserves, rapid increasing production,low production costs and a subsidiary, which value is not reflected in the share price.

Well I have probably fallen in love with this company but just maybe there are some value here.....

[eagerlearner]

applaud!
what's more to say?   

thanks mike.

[Michael]

And here is the final chapter.

As I said it is funny to see how things are connected. I started out with Petrokazakhstan and now the rumor on the street is that NLG is going to take over PKZ.

Here is what Bear Sterns has to say:

NLG merger with PKZ recommended:

"We believe the list [of potential bidders for PKZ] is shorter than most believe due to the inherent complications. While an acquisition of PKZ would be a wonderful transaction/LBO due to its supercheap valuation (2.6x EBITDA), net cash position ($1.58/sh), and substantial free cash (1Q05 offered 22% free cash flow yield annualized), it is not for most buyers due to multiple conflicts with the government and PKZ's partner Lukoil. Additionally, the operating environment in Kazakhstan has become increasingly difficult for Western investors during the past two years, therefore, we believe, keeping those without assets in Kazakhstan away. We believe the list could conceivably include Chevron or Eni, but both have existing substantial exposure to Kazakhstan that remains complicated. The most likely to bid, we believe, would be privately held CNPC (or some arm), ONGC (looking at everything), Lukoil (we think they'd only like to secure N. Kumkol), Nelson Resources (the perfect buyer if it can secure the capital),
Kazmunaigas (only if executing its right of first refusal - not an initiator, which could be preordained), private investor/group (could involve Nelson shareholders or other regional private equity groups/family money).
...

Our chief expectation is for Nelson Resources to make a bid in conjunction with a third (funding) party. Such discussions occurred several years ago; however, at the time Nelson was much smaller and far earlier in its acquisitions campaign. However, it was then, as it is now, in a strong position, being owned 60% by powerful Kazakh financial interests and run by a CEO with a long history in the country (having run Tengiz for Chevron). Finally, its current rich
valuation, trading at 7.6x 05E EBITDA and $10.5/boe, offers a fair value for its aggressive development program in eastern Kazakhstan. A deal between the two would represent a merger or reverse takeover, however Nelson's substantial cash calls could be paid for easily via the cash-rich PKZ asset."

Well I think it is a match made in heaven. (remember the problems I had with PKZ?) You have a very well connected company (NLG) and a very cash rich company with all kinds of political problems which keeps the value down. A merger would release incredible value!

But then this is indeed speculations and even though it adds a huge upside in my opinion NLG should be valued based on the existing assets and according to ATON that alone gives it a 100% upside!

I know this was a way too long story - but sometimes it is impossible to give insight in a 5 liner 

[usedcasting]

Michael, I have been following NLG for about 4 months and I just wanted to say your comments here are bang on. I am happy to be aboard.

Usedcasting

[Michael]

Hi Usedcasting

Welcome to 3SOF. Now we are at least three that are in love with Ms. Nelson

One of the Top pickers here is eliteG. Make sure you read his posts!

About NLG he said:

..... Support @ 2 looks valid but only a close in the area of 2.15 - 2.25 with volume would make me excited as a technician.  Goodtrading. 

Well yesterday we had the volume and a close between 2.15 and 2.25 is likely today so just maybe eliteG will give us his blessing to go on honeymoon with our sexy little lady!

Mike

[video]

I have owned Nelson since 1989. I have seen it go from a movie company to a shell company to a gold miner in Tajikistan to finally an oil company in Kaz. I have a very large position in NLG and see it's potential as tremendous.

So add me to team Nelson. Michael your DD is fantastic.

Video

[video]

Great close today...Nlg @ a 4 month closing high of $2.27 Can. or $1.87 US equivalent.
If NLG crosses $2.55 with good volume then the next intermediate target is $3.50 Can.

Video

[video]

A positive spillover from the Pkz takeover; increased production; upcoming earnings report for the June quarter and possible news on the Caspian fields have moved this baby up for the week to a close of $2.25 Can.

Comments anyone??

Video

[valueseeker]

Interesting play. I might add on Monday. What do you guys use to trade Canadian stocks? What is the commission and exchange rate they typically get?

Thanks.

[video]

I use TD Waterhouse...they have an office that can trade directly on the Toronto exchange.



   

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